The chapter explores India’s development paradox of economic growth with massive rural poverty and unemployment, using the innovation systems framework as a lens. The innovation systems framework is being promoted in Indian economic decision-making. The framework tells us that innovation happens only when both technological and institutional changes occur. Yet, reconciliation between the narrow S&T-based and broader institutional learning-based approach to innovation has been difficult due to limited appreciation of the stranglehold of institutions over the components of the national innovation system (NIS). This chapter enquires how institutions, the overarching rules or norms that shape economic decisions, were considered in India’s production investments and technological capacities in agriculture and industry, sectors critical to production and consumption opportunities for India’s massive rural population. Norms of surplus extraction from modern technology based agriculture, and of technologically determined linkages between industries govern India’s centralized technological capacities and techno-centric production investments. Based on an understanding of the institutional realities of the economy, India’s NIS should address the aggregate demand constraint and limited opportunities for labour-intensive industrialization, in order to ensure employment and incomes for the rural poor, instead of focusing exclusively on high-tech-based export markets. © Indian Council for Research on International Economic Relations (ICRIER) 2015.